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Chances are you've never heard of $42 million
Oberweiss International Opportunities
(ticker: OBIOX), yet this fund is up an average of 26% a year over the past three years and ranks in the top 1% of its Morningstar category. The same is true of the $97 million
Buffalo Micro Cap
fund (BUFOX), up 23% annually in the same stretch, and countless other minuscule funds with jumbo results, but not much of a following.

"Unless a small fund finishes in the top 1% of its peer group, it tends to be off the radar," says Todd Rosenbluth, senior director of fund research at S&P Capital IQ. Sometimes, it's for good reason—inconsistent results, high fees or a strategy that's too niche—but often it's simply because growing assets can be a tall order, especially for boutique firms with little or nonexistent marketing budgets.

Many 401(k) plans and fund platforms won't add a fund until it has a few years of results and a few hundred million under management, says Russel Kinnel, director of mutual-fund research at Morningstar. Funds launched just prior to or following the financial crisis, he adds, have found it particularly difficult to gather assets as investors have, until recently, turned their noses up at equity funds in general. Meanwhile, investors, analysts, and the financial media tend to shy away from tiny funds. If they don't have many assets, the reasoning goes, there must be something wrong.

Yet there's good reason to give these funds a look. Many are run by managers who built great track records at larger firms and have gone off on their own, notes Brad Reynolds, a financial analyst at the LJPR wealth-management firm, based in Troy, Mich. "They know what they're doing, and, in many cases, have seeded the funds with their own money," he says.

THAT'S ONE REASON David Waddell, chief investment strategist of Memphis-based Waddell & Associates, is not only willing to give small funds a closer look, but also goes looking for them. "I'm not afraid of funds as small as $30 million," says Waddell, adding that four of his 10 core fund holdings started out tiny. When David Winters, the former Franklin Mutual Advisers chief investment officer, launched his now $1.9 billion
Wintergreen
fund (WGRNX) in 2005, Waddell was an early adopter. In 2011, Wasatch Advisors alum Robert Gardiner struck out on his own with Grandeur Peak Global Advisors, and Waddell sent some money his way. Over the past year, Gardiner's
Grandeur Peak International Opportunities
(GPIOX) ranks in the top 4% of small foreign-stock funds; his
Global Opportunities
fund (GPGOX) is in the top 3%. Not surprisingly, both have grown, with roughly $360 million in assets each.

"For us, it's about finding a manager with talent, conviction, and control," says Waddell. "When you have a small asset base, the manager is the CIO and the CFO, and the success of their firm hinges on the success of the portfolio."

Small funds do have their drawbacks. First and foremost: their fees. "They tend to be higher just because of economies of scale," says Reynolds. All things being equal, a fund with a lower asset base has to charge more just to cover its costs. Buffalo Micro Cap levies a 1.5% expense ratio versus a category median of 1.2%. Oberweiss International charges 1.6%, versus 1.4% for its peers.

Another concern is how an influx of new assets will affect results. "There's a risk that the manager will be overwhelmed by a flood of assets coming on a small base," says ReKeithen Miller, a financial planner with Palisades Hudson Financial Group in Atlanta. That cuts both ways. Redemptions, even just from one or two large clients, can be devastating. When managers are forced to sell prematurely to raise cash, it's at the expense of remaining shareholders.